October 11, 2007

Customer Loyalty vs. Customer Acquisition

Imagine you are running a direct-to-consumer business. Your board of directors wants you to increase sales at a faster rate than sales are growing.

Your board of directors is split on how, from a marketing standpoint, to grow sales. Half the team wants to increase customer loyalty via a loyalty/rewards program. The other half of the team wants to grow the business by ramping-up customer acquisition activities.

What information would you need to help your CEO make this decision?

In lieu of good data, which strategy do you believe is more likely to be successful, and why?

2 comments:

On the acquisition side, web vehicles outperform catalogs in terms of recoup time. But the AOV of catalog acquired customers is "n" times more than that of web vehicles (n is usually greater than 3 or more); also the same goes with their downstream contribution to overhead.

One reason catalog prospects do not recoup, lets say in twelve months, is because lack of some multi-buyer programs such as any loyalty programs. Once the customers are acquired, typically, the company keep hitting them with the same 36 page catalog for a number of months.

It would be ideal to acquire customers through prospects and have some multi-buyer programs that would turn them into web buyers to reduce any downstream catalog costs.

I have been researching customer service and I ordered a customer service book that has been really helpful. This book really makes the point that customer retention is better that customer acquisition. I feel it has been very informative so far.

Kevin Hillstrom, President, MineThatData

Kevin is President of MineThatData, a consultancy that helps CEOs understand the complex relationship between Customers, Advertising, Products, Brands, and Channels. Kevin supports a diverse set of clients, including internet startups, thirty million dollar catalog merchants, international brands, and billion dollar multichannel retailers. Kevin is frequently quoted in the mainstream media, including the New York Times, Boston Globe, and Forbes Magazine.

Prior to founding MineThatData, Kevin held various roles at leading multichannel brands, including Vice President of Database Marketing at Nordstrom, Director of Circulation at Eddie Bauer, and Manager of Analytical Services at Lands' End.

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